Q8SE - Horngren'S Financial And Managerial Accounting

Question

Computing variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson: 

1. Produces and sells 2,000 units. 
2. Produces 2,500 units and sells 2,000 units 
3. Produces 5,000 units and sells 2,000 units.

 

S21-6 Direct materials                                            \) 41 per unit                                                                       Direct labor                                                     57 per unit                                                                 Variable manufacturing overhead                7 per unit                                                               Fixed manufacturing overhead                 20,000 per year        

Step-by-Step Solution

Answer

Answer

 

1. Contribution margin =$140,000
2. Contribution margin =$140,000
3. Contribution margin =$140,000

 

Step 1: Calculation of unit product cost using variable costing

Units Produced	2,000 Units	2,500 Units	5,000  Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Total unit product cost	$105	$105	$105

Step 2: Calculation of contribution margin (a, b, c) :

Particulars	Produce and sell 2,000 units	Produce 2,500 and sell 2,000 units	Produce 5,000 and sell 2,000 units
Net sales revenue	2,000*$175 =$350,000	2,000*$175 =$350,000	2,000*$175 =$350,000
Less: Variable costs	2,000*$105 =$210,000	2,000*$105 =$210,000	2,000*$105 =$210,000
Contribution margin	$140,000	$140,000	$140,000